May 30 2014
Following Warren Buffet's recent order for $1 billion worth of wind turbines, comes further validation of the rapid growth of the space and the technology as General Electric invests $10 billion; $8 billion in wind farms and the balance in solar. The initiative will see projects in 16 countries and 28 states, making GE arguably the largest global investor in Clean-Tech power generation.
For context, these renewable energy projects avoid the annual emission of about 26 million metric tons of greenhouse gases, the equivalent of 5.6 million cars, according to US Environmental Protection Agency methodology.
Globally, one of the fastest moving and investable markets for wind energy is Brazil. GDP is substantially greater than that of Canada and per capita (204 million current population) and electricity demand is expected to double within 20 years. Living standards are rising as the middle class approaches 50% of the population and with that, growing power needs on a very large scale.
"Green Hygienics (GRYN:OTCQB) has a clear and compelling competitive advantage in Brazil," states Dave Ashby, President and CEO. "Given that we have worked hard to develop key relationships and are already on the ground with 12 - 2 megawatt wind turbines under contract at an extreme discount to market, we have some key advantages. The economics for other companies in this case not to mention the wait time for their turbines, time to build and deliver and logistical challenges make the barriers to entry for competitors severe and far more costly."
Ashby continues: "We acquired an option on the turbines through one of our principal shareholders and when exercised, would give us a cost of roughly $2.5 million or about $0.06 on the dollar. To replace these would be likely be in excess of $24 million. We are in the enviable position of owning an extremely valuable and sought after asset, which we could either sell, or arrange a JV to build a 24 megawatt wind farm. Once built, it would generate immediate and significant cash flow."
The revenue opportunities are no less compelling. Comparing the average North American wind farm economics and Brazil, using 35% and 60% daily wind time respectively, the annual production of energy would yield $6.6 million gross revenue for the former and almost 6 times that to $34 million for Brazil, which has almost twice the wind 'feed stock' and significantly higher power rates.
Clean-Tech is great business. Innergex Renewable Energy owns and operates hydroelectric, wind and solar generation assets in Canada and the US. Since inception in 1990, the company has grown to a market cap of almost C$1 billion and is trading close to a 52-week high of C$10.39. In comparison, GRYN has a market cap of US$5.61 million and trades at $US0.50. Interesting to note that the 12 wind turbines that GRYN owns potentially have a retail value of roughly four times its current market cap. The company also has a small float of less than 2 million shares, out of an equally small total outstanding of 11,217,000 shares fully diluted.
GRYN has several competitive advantages in Brazil. Boasting a team with many years of international experience, management has an exceptional track record in establishing marketing and distribution systems suited to the Clean-Tech space. The Company also brings financing expertise for this type of business, which is not familiar to Brazilian companies. GRYN also secures buy and build opportunities through the sourcing of local business partners in Brazil.
GRYN has recently seen good market activity as the shares price has risen from US$0.39 cents to a recent high of US$0.59 in less than a month. Not surprising, since both the business model and potential obviously are garnering investor attention. The small float also makes the shares more reactive.
As well, with high profile companies such as GE and Berkshire Hathaway investing sizeable dollars to the Clean-Tech space, investors are becoming more comfortable and willing to commit funds.
Solar and wind have also come down substantially in price—almost 80 percent which makes these forms of power generation more competitive than ever. Couple that with the Clean-Tech friendly atmosphere and the critical need for solutions in Brazil and GRYN seems to have a compelling story.
GRYN is a diversified company and plans to build out its business model for Clean-Tech Wholesale Distribution Centers. The first centre is to be in the State of Ceara, Brazil, known as the fastest growing state in Brazil in 2013. Its capital Fortaleza, a city of 3 million, will be the primary location to carry LED lighting, solar panels and wind turbines. To maximize impact, GRYN will secure exclusive licenses and distribution rights for each product and own the land for both the wind farms and wholesale distribution centers.
Wind energy is the fastest growing source of power generation in Brazil. The potential is estimated at 300 GW and expectations are that it will require 2.2 GW each year until 2020. Companies such as Green Hygienics are in exemplary position to address that need and bring exceptional value to shareholders.
Recent market action connotes that investors are paying attention to the Company and the sector. While GRYN's initial foray is into Brazil, which makes clear economic sense both for the Company and shareholders, the unique model will be undoubtedly expanded to other global jurisdictions.
Green Hygienics trades at $0.50 with a market cap of US$5.61 million.